Prime Minister Sinzo Abe and Bank of Japan governor Haruhiko Kuroda may get more than they bargained for.

The yen collapsed against the dollar. It dropped nearly one-third in value. Doing so sent the Nikkei “screaming higher.” Doing so’s not like what it looks.

Currency devaluation to generate inflation has a price. “The ‘bad news’ came in the bond market.” It went limit down on yield.

“Since the government is massively in debt, it will be unable on a cash basis to pay its bills, as they will not be able to roll over the existing debt when it matures and pay the (new) coupon.”

“If (it tries) then (it’s) forced to continue to print even more yen to fund the interest payments, which in turn causes the value of the bonds emitted to go down further – a monetary equivalent of a flat spin – and is unrecoverable.”

Import prices already soared 30%. Japan’s heavily dependent on foreign oil. Many of its other industrial requirements are imported.

In mid-April, former George Soros advisor on Japanese investments, Takeshi Fujimaki, tripled down on warnings.

He believes massive QE won’t stimulate growth. It promises trouble.

“By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose.”

“Kuroda’s QE announcement is declaring double suicide with the government. The BOJ will have to share the country’s fate and default together.”

“The volatility in the JGB market as well as the fact that there is large selling represent fear among investors.”

“They are early signs of a larger selloff and we should continue to monitor the moves in the long-term bonds.”

“Japan’s finance is sinking into the ocean. There’s no escape from a market crash in the future when you have such enormous debt.”

He sold almost all his Japanese equity holdings some time ago.

In early April, Bank of Japan governor Kuroda announced pedal-to-the metal QE. He plans to double Japan’s monetary base. He’ll do so in less than two years.

Any significant rise in JGB yields defeats his strategy. Japan’s government bond market stands at 240% of GDP. It’s the highest debt burden among developed countries.

On May 20, market analyst Graham Summers signaled trouble. Kuroda’s announced $1.2 trillion QE policy hammered the yen. At the same time, it fueled over a 70% Nikkei rally in six months.

“This has been the fundamental driver of this latest risk on rally.” Fed governors suggest reduced QE by yearend or sooner. “So it’s the Bank of Japan who’s in the driver’s seat for asset prices today.”

What’s good for stocks is bad for the yen. “(I)t’s been an absolute disaster for Japanese bonds.” Since announcing new BOJ policy, JGBs “triggered circuit breaks no less than four times due to increased volatility.”

Late last week, they violated their multi-year trend line. They did so briefly. Doing so suggests again. Perhaps they’ll breach it sharply. It matters.

Greece impacted it earlier. It’s bond market is miniscule. It’s less than 3% of Japan’s.

For many decades, Japanese bonds were considered “risk free.” Investors bought them at very low yields. Doing so helped Japan’s economically. It grew marginally. Absent foreign investors, it would have fared worse.

If Japanese bonds begin imploding, said Graham, expect trouble. Doing so means:

“The second largest bond market in the world is entering a bear market (along with commensurate liquidations and redemptions by institutional investors around the globe).”

“The second largest economy in the world will collapse (along with the impact on global exports).”

Worse still, global central bank efforts to hold international finance together “will have proven a failure.”

Japan is a major central bank “progressive and accommodating policy” leader. For nearly two decades, BOJ kept interest rates near zero.

He is host of a progressive radio show with cutting-edge discussions and distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network. It airs Fridays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening. It airs Fridays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

Stephen Lendman is a writer, syndicated columnist, activist, News TV personality, and radio show host. He currently writes for MoneyNewsNow.com and VeteransToday.com and hosts, since 2007, a progressive radio show at The Progressive Radio News Hour on The Progressive Radio Network.
Stephen Lendman was born in 1934 in Boston, MA, raised in a modest middle income family, attended public schools, received a Harvard BA in 1956 and a Wharton MBA in 1960. After six years as a marketing research analyst, Lendman became part of a new small family business in 1967, remaining there until retiring in 1999.
Since then, he has devoted his time to progressive causes, extensive reading, and since summer 2005 writing on vital world and national topics, including war and peace, American imperialism, corporate dominance, political persecutions, and a range of other social, economic and political issues.
He is also author of the celebrated books "Banker Occupation: Waging Financial War on Humanity" and "How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War".

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